Release of Confidential Plan Sponsor Data Draws
Fire

June 18, 2002 (PLANSPONSOR.com) - A US Congressman
and the Labor Department's Inspector General have come under
attack for publicly releasing plan sponsor information -
information provided under a promise of
confidentiality.

Representative Bernie Sanders (I-VT) and Labor
Department Inspector General Gordon Heddell have drawn
criticism for publicly releasing the names of 13 companies
the IG has said have underpaid retirement benefits for some
workers who left the companies before retirement age.

The critics include plan sponsor lobbyists as well as
the head of the Pension Welfare Benefits Administration,
and the evidence includes letters exchanged by Sanders and
Heddell. Sanders made the names of the companies public on
May 20, after Heddell identified them in an attachment to a
May 16 letter to him. Sanders had written the IG asking for
the names.

Internal Use Only?

In
his reply
, a copy of which Plan Sponsor has obtained, Heddell stated
that the information was being provided to Sanders “in your
capacity as the Ranking Member of the Subcommittee on
International Monetary Policy and Trade.” Heddell
specifically noted that the information was not available
under the Freedom of Information Act and therefore is not
potentially in the public domain. “Consequently, I would
request that, if at all possible, this information be used
only for the internal uses of the Subcommittee and that it
not be disseminated any further,” he wrote.

Sanders ignored Heddell’s request and released the
names. When asked why, Sanders’ press secretary replied,
“These 13 companies were found to be illegally slashing
their workers’ pensions, and it was important for the
workers at these companies to know and that the names be
released.” The fact that 13 of the 60 companies were
violating the law suggests that the problem of underpaying
pensions in cash balance conversion is widespread, the
press secretary adds, and by releasing their names, Sanders
has drawn attention to a significant problem (see
Legislators Push for
Answers on Cash Balance Calculations
).

Study Findings, Extrapolation

The
IG’s study
found that workers at companies that had converted their
defined benefit pension plans to cash balance plans and who
left before reaching retirement age were underpaid an
estimated $17 million annually. Applying the rate of
underpayment at the sampled companies to the estimated 300
to 700 cash balance conversions that have occurred, the
total annual underpayment would be between $85 million and
$199 million annually, the study stated.

Despite these revelations, Mark Ugoretz, president of
the ERISA Industry Committee, faults Heddell and Sanders
for violating the confidentiality of the 60 companies that
participated in the study. Heddell gave Sanders the list of
all 60 companies with a notation by name of the 13 that
were accused of underpaying workers’ pensions.

“Under the inspector general law, the inspector general
was obligated to maintain secrecy in the confidentiality of
the information he received,” Ugoretz says. Further, the IG
is under no obligation to release documents to Congress
unless a committee specifically asks for it – and a request
from a ranking member of a committee is not sufficient.
Even after receiving the names, Ugoretz says, “I think
Sanders had an absolute obligation to honor the
confidentiality agreement.”

Heddell’s and Sanders’ actions could harm the federal
government’s ability to conduct investigations, Ugoretz
argues: “If the inspector general is correct in what he did
and if Bernie Sanders is correct in what he did, an offer
of confidentiality by any government agent isn’t worth the
paper is it printed on.”

Confidential Disclosures

In a
copy of a letter
the IG’s office sent to a company it wanted to participate
in the study, obtained by Plan Sponsor
, Linda Darby, regional inspector general for audit in San
Francisco, wrote, “[T]he information you provide is
considered confidential. The results of our review of your
information will be combined with reviews of other plans
and will be used to develop a report to Department of Labor
management officials. The report will not identify any
plans or plan sponsors by name or other identifying means.”
The name of the company was blacked out on the copy Plan
Sponsor obtained.

The IG’s study was not an audit of companies suspected
of wrongdoing, Ugoretz points out, but of the DoL’s own
enforcement efforts, and so “it’s questionable whether
companies involved were even obligated to provide the
information.” That is why they should have been provided
confidentiality, he says.

Findings Questioned

In the study, Heddell alleges that the 13 companies were
violating Sections 411 and 417 of the Internal Revenue Code
and parallel provisions 203 and 205 of Title I of ERISA. He
called on the Pension and Welfare Benefits Administration
to more vigorously enforce the law affecting participants
in cash balance conversions and to initiate action against
the 13 plans that the IG found had underpaid participants.
He also suggested that the PWBA work further with the IRS
to develop improved guidance for plan sponsors in
calculating benefits.

But Ann Combs, assistant secretary of labor for the
PWBA, took issue with some parts of the IG’s study in a
letter to Elliott Lewis, acting inspector general for
audit. For one thing, she wrote, the report failed to note
that the DoL was restricted in what it could do about lump
sum calculations. Authority to issue regulations, rulings,
opinions, variances, and waivers related to ERISA plans was
transferred to the Treasury Department in a 1978
reorganization, and the DoL “is bound by regulations and
interpretations issued by the Secretary of the Treasury in
bringing such actions,” Combs wrote (see also
Cash Balance Audit
Conclusions Drawn, Questioned
).

Combs forwarded the IG’s report and attached documents
to Treasury and the IRS for an expedited review. The IRS so
far has not said how it has responded or intends to
respond.

Combs also raised questions about the sampling
methodology that allowed the audit team to reach its
estimate of $85 million to $199 million annually in
underpaid lump-sum payments for participants in cash
balance conversions. The PWBA would need a broader survey
or more detailed information from the IG’s office before it
could decide to redirect its resources to more enforcement
in this area, she said.

Ugoretz goes further, faulting the fundamental findings
of the IG’s study that participants were underpaid. The
method for calculating the value of a lump sum payment in a
cash balance plan should be simply the present value of the
cash balance account, he claims. Instead, the IG projected
the participants’ account balances, with interest credits,
to normal retirement age, then converted the account
balance to an annuity, which is discounted to its present
value using Treasury-specified interest rate and mortality
assumptions.

Sometimes, when a plan’s interest rate assumption was
higher than the legal discount rate, the calculation
produced a lump sum greater than the accumulated cash
balance account – an effect known as “whipsaw.” By using
this method, Ugoretz claims, the IG’s study provided
participants with a “windfall” and not an accurate value
for their accumulated pensions. But the IG’s office says
their methodology is required by statute, and Combs has not
identified this publicly as an issue.

Sanders also requested the names of the individuals at
the 13 companies who the IG claimed were underpaid. But in
his May 16 letter to Sanders, Heddell did not attach those
names, noting they were provided confidentially and that
some companies did not provide individual names. He offered
to meet with staff members from Sanders’ office to discuss
providing some of the names. But a spokesperson for the
IG’s office says that since the letter was sent the IG has
held no meetings with Sanders’ staff and has forwarded no
individual names.

These names might be made use of by trial attorneys
looking for opportunities to file class action lawsuits,
Ugoretz contends, and therefore should not be provided.

Whatever the outcome of the IRS’s deliberations, Sanders
is not waiting for the agency to respond to Combs’ letter.
He is planning to introduce legislation requiring the DoL
to enforce “to a higher degree” the pension laws cited in
the IG’s study, his press secretary says.